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European Manufacturing And Services Widen Contraction To Add To Worries, Euro Drops Print E-mail
Daily Forex Fundamentals | Written by | Feb 21 13 09:28 GMT

European Manufacturing And Services Widen Contraction To Add To Worries, Euro Drops

European manufacturing and services data showed a widening contraction in the second month of 2013, to add to worries the euro area economy will not show any progress in the first quarter.

PMI composite of manufacturing and services showed a contraction for a 13th month in Feb. where the contraction widened to 47.3 from 48.6 in Jan., according to the advanced reading.

Manufacturing sector's contraction increased to 47.8 from the prior of 47.9 and services deteriorated to 47.3 from 48.6.

After the confidence which was regained after the latest decisions made by European officials last year to ease the three-year-old debt crisis, worries were renewed after a report released last week showed a worse than expected contraction in the euro area in the last three months of 2012.

Eurozone recorded a contraction of 0.4% in the fourth quarter from 0.1% contraction in the previous three months, underpinned by the contraction in the region's biggest four economies as Germany contracted 0.6%, more than forecasts of -0.5%, France's economy shrank 0.3%, Italy dropped 0.6% and Spain reported a contraction of 0.7%.

ECB President Mario Draghi said last month the worst of the debt crisis may be over, stating the “darkest clouds” have lifted, but he played down his confidence tone this tone by mentioning that growth risks remains to the downside, referring that the data signals a continuation to the weak growth pace in the last three months of 2012 and the first quarter of 2013.

In the coming period the euro may face further downside pressure due to the several reasons. First, expectations of seeing Silvio Berlusconi as Prime Minister in February's elections after polls showed he narrowed the lead on Pier Luigi Bersani, raising concerns he may not conform to reforms recommended by European leaders.

Second, Spanish Prime Minister Mariano Rajoy is facing pressure to step down after allegations that he received illegal payments.

Third, Spanish debt yield rose once again to its highest since mid December after hitting a record low at the beginning of the year.

Fourth, worries from Cyprus which became the fifth euro area nation to seek bailout after it was harmed from Greece's debt restructuring and amid allegations of money laundering and the role of Russian money in its financial sector.

In Germany, the manufacturing gauge showed an expansion of 50.1 this month from a contraction of 49.8, whereas services recorded a narrowing expansion to 54.1 from the prior of 55.7.

As of 09:10 GMT, the euro resumed its drop for a second day to 1.3197 after hitting a high of 1.3289.


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